Most market-based regulatory proposals to limit GHG emissions include provisions that allow market participants to seek reductions outside the regulated system. These reductions are typically referred to as offsets.

Offsets are attractive because they can expand the available pool of low-cost reduction options, particularly in the near future. Many potential offset projects, however, present challenges because the emissions reductions they generate are difficult to measure or, in the case of sequestration, carry risks of impermanence. The challenge is to design an offset program that incentivizes reductions while also ensuring their integrity.